Netherlands: Bill Modernization of the Non-Competition Clause

In recent years, criticism of non-competition and relationship clauses has significantly intensified. This is primarily attributed to the widespread misuse of non-competition or relationship clauses by employers, who employ people to prevent scarce talent from joining competitors or as a precautionary measure, even when these employees do not possess sensitive company information. Consequently, employees often find themselves unnecessarily restricted in their job mobility, which violates their right to choose where they work. The Modernization of Non-Competition Agreement Bill aims to overhaul and improve the regulations concerning non-competition and relationship clauses in the Netherlands, thereby tackling the improper utilization of non-competition and relationship clauses.

 

What changes?

This law entails the following regulations:

1. A non-competition clause may have effect for a maximum of one year after the end of the employment contract;
2. The employer must provide written reasons for the area in which the employee is not allowed to work due to the clause;
3. The compelling business or service interest for the clause must be justified in writing for all employment contracts (currently, this requirement is only mandatory in fixed-term contracts);
4. When the employer wishes to enforce the non-competition clause, they must provide compensation to the employee. This compensation amounts to 50% of the employee’s last earned monthly salary for each month that the clause remains in effect;Bovenkant formulier
5. The employer must notify the employee of its decision to maintain the clause at least one month before the end of the contract. At the same time, the employer must promptly pay the compensation due. If the employer fails to notify the employee or fails to pay the compensation in a timely manner, the employer will not be able to enforce the clause against the employee.

 

Status of the bill

After approval by the Council of Ministers, the proposal is now available for internet consultation for six weeks. The proposal must then pass the House of Representatives and the Senate.

 

Transitional law

The new legislation is scheduled to begin operating on January 1, 2025. The non-competition and relationship clauses agreed upon prior to the new law will remain valid, even if they do not meet the new formal requirements (i.e., written justification, duration and geographical scope). However, the substantive requirements will still apply to these clauses. Therefore, the employer cannot enforce a duration of more than one year and must inform the employee in a timely manner and provide compensation if they wish to enforce the clause.

Key Action Points for Human Resources and In-House Counsel:

It is advisable to:

• Review your (employees’) non-competition and relationship clauses. Employers will need to consider whether they are willing to pay compensation if they invoke such a clause. For employees, this presents an opportunity to claim such compensation when they are held to the clause by their employer.
• Ensure that when entering into new non-competition and relationship clauses, the aforementioned conditions are met to prevent clause from being null.